Senator Tori made a motion to approve the minutes of the
March 15, 2006 meeting as submitted. The motion was seconded by Representative
Marcotte and passed by voice vote.

Representative Denham called on Ms. Mary Lynn Collins,
Committee Staff Administrator, to review correspondence and information items
included in members' folders. Ms. Collins said the folders included four items
of correspondence: follow-up correspondence from the Department for Facilities
and Support Services in response to questions raised by the Committee at its
March meeting regarding Steelox, the roof manufacturer for the McDowell
Rehabilitation Center for the Blind; the semi-annual report of the Kentucky
Asset/Liability Commission; quarterly status reports on authorized capital
projects from the Finance and Administration Cabinet, Murray State University,
University of Kentucky, University of Louisville, Western Kentucky University,
and the Administrative Office of the Courts; and the Kentucky Lottery
Corporation's monthly financial report for February 2006.

Ms. Collins said three information items were also included
in members' folders: a staff update on various capital projects; proposed
legislation relating to the jurisdiction of the Capital Projects and Bond
Oversight Committee; and the updated monthly and weekly debt issuance calendar.

Representative Wayne referred to a portion of the staff
update that noted the roof on the Kentucky History Center is being replaced. He
asked why the roof is being replaced on a facility that is relatively new. Mr.
Jim Abbott, Commissioner for Facilities and Support Services, Finance and
Administration Cabinet, said there have been issues relative to the
installation and design of the roof, as well as issues concerning the materials
used to construct the roof. He said this combination of problems has made it
very difficult to determine who should be held solely responsible for the roof
repair, and as such, the Finance Cabinet thought the most appropriate action
was to use the remaining available project funds and fix the problems
associated with the roof.

Representative Denham asked Mr. John Hicks, Deputy State
Budget Director, Governor's Office for Policy and Management, and Mr. Abbott to
present the Finance Cabinetís monthly report to the Committee. Mr. Hicks
reported a $4,286,000 restricted funds scope increase for the Northern Kentucky
University (NKU) Regional Special Events Center project, and said the 7% scope
increase is necessary to complete the facility, maintaining the size, and with
the amenities needed for the project. The reason cited for the cost overrun was
the increased cost of materials. Mr. Hicks said the University will generate
the funds to cover the scope increase through revenue it will earn from a
contract for exclusive rights for concessions and ticket management. In the
event that the University cannot generate the full $4,286,000 for the scope
increase, the University will use its own funds without raising student fees.
Mr. Hicks said, based on careful study of all cost reduction possibilities and
performing value engineering with the construction manager, the NKU project
staff think the scope increase is appropriate.

Representative Denham asked if the Finance Cabinet is
concerned that the cost estimates used for other projects authorized by the
2005 General Assembly also did not adequately take into account the rising
costs of building materials. Mr. Abbott said the estimates they have presented
to the Committee reflect current costs. He said this project is being bid in a
number of different packages, the first being site clearing and grading in May.
He said the project will take a long time to complete. With the scope increase
requested, they anticipate being in good shape.

Representative Denham said in his district the cost of
construction materials has escalated and many contractors have moved south to
work due to Hurricane Katrina. He asked Mr. Abbott if this was happening with
other projects. Mr. Abbott said this was a concern, and they have seen some
increases in materials costs. However, their experience is varied. Some recent
projects have come in over scope, some have come in on budget, and a few have come
in below budget. He said they believe the full impact of Hurricane Katrina has
not yet been felt. Mr. Abbott said some of the projects that were bid out early
went out at a good time. He cited the State Office Building project as an
example, a project in which the bid came in under the estimated scope by
approximately $8 million.

Mr. Hicks next reported a scope increase for the Kentucky
State Fair Board project, Renovate East Wing/East Hall. This project was
authorized in the 2004-06 budget at a scope of $55,000,000. Mr. Hicks said bids
for this project were opened approximately one month ago and a scope increase
of $3,405,500 (6.2%) is needed to accept bid alternate one to build a north
lobby pedestrian connector above the East Wing. The funding source for the
scope increase is the remaining balance in the earlier South Wing
Expansion/Renovation project, which was authorized in the 2002-04 budget for
$52 million in agency bonds.

Mr. Hicks then reported a scope increase for the Glasgow
State Nursing Facility Structural Repair project. This emergency project was
reported to the Committee in January 2006 at a scope of $450,000. Mr. Hicks
said the structural repair is going well, but an additional $45,000 is needed
to fully fund the shoring design that was underestimated in January. The source
of funds for this increase is the Cabinet's bond funded maintenance pool.

The final item Mr. Hicks reported was a $200,000 scope
increase for the Kentucky State Police (KSP) to upgrade its statewide
communications system. This project is part of the KSP Homeland Security
Communications Project I, which was established as an unbudgeted project at a
scope of $2,896,100 (federal homeland security funds). The project will
increase the interoperability of systems between KSP, local police forces, and
emergency responders. Mr. Hicks said KSP has been awarded $200,000 in federal
homeland security funds to purchase other equipment associated with the
implementation of the project.

Representative Denham asked if this system will help local
first responders in rural and remote areas communicate with each other.
Lieutenant Colonel Shelby Lawson, Director of Technical Services, KSP, said
this project is designed to help all first responders communicate with each
other. He said this project will help first responders in those first critical
moments when everybody is responding to an incident. He said once they are on
scene, the agencies can use their own radio systems for intra-agency
communication.

Representative Denham asked if the agencies needed to apply
for grants from the federal government for communications assistance. Lt.
Colonel Lawson responded that some of the agencies would need to apply for
these grants. He said some of the federal grants and a lot of the homeland security
grants are designed to enhance an agency's intra-agency communication ability,
and Homeland Security has been flexible in funding those projects as long as
they are geared towards interoperability.

Representative Denham said he appreciated KSP's attention to
this problem which is critical in rural areas.

In response to a question from Senator Tori, Lt. Colonel
Lawson said the Center for Rural Development is administering the KSP Homeland
Security Communication project, but it is a statewide project that will
encompass all 120 counties in the state. He said this federal funding is
unexpected and came at a opportune time when old equipment needs to be
upgraded. He said KSP had to purchase 800 megahertz base stations and erect
some 800 megahertz towers to cover the Northern Kentucky where the KSP does not
normally utilize 800 megahertz frequencies.

Representative Marcotte made a motion to approve the scope
increases for the NKU Regional Special Events Center project, the Kentucky
State Fair Board Renovate East Wing/East Hall project, and the Kentucky State
Police Homeland Security Communications project. The motion was seconded by
Representative Wayne and passed by unanimous roll call vote. No action was
required on the fourth project, the structural repair project at Glasgow State
Nursing Facility, since this project is an emergency.

Representative Denham asked Mr. Abbott to update the
Committee on the Bert T. Combs Forestry building in Pineville at its May
meeting.

Ms. Collins said membersí folders included a 2020/Fund B
Grant for the Larue County Water District and various line-item Coal/Tobacco
Development Grants approved in the 2004-06 budget. Representative Denham said
no further action was required on these projects.

The next report was provided by Mr. Tom Howard, Executive
Director, Office of Financial Management (OFM). Mr. Howard presented two new
school bond issues with School Facilities Construction Commission (SFCC) debt
service participation for Ludlow Independent (Kenton Co.) and Madison County.

Senator Tori made a motion to approve the two school bond
issues. The motion was seconded by Representative Wayne and passed by unanimous
roll call vote.

Ms. Collins said there were two locallyĖfunded school bond
issues submitted to the Committee for review this month for Daviess County and
Pulaski County. She said all disclosure information has been filed, and no
further action on the bond issues is required.

Representative Marcotte noted that Moody's rating carries a
negative outlook for Kentucky. He asked Mr. Howard to explain what a negative
rating would mean for the state and what the anticipated bond rating would be
if the proposed conference report on the Executive Budget passed later in the
day.

Mr. Howard said the appropriation supported debt of the
General Fund is rated Aa3 with a negative outlook by Moody's. Fitch has rated
it AA- with no expression and S&P has rated it A+ stable. Mr. Howard said
Moody's has expressed some concern in a variety of areas for the state. The
major categories they look at are the stability of revenue streams, the
diversity of those revenue streams, how those match up against the
expenditures, and the structural balance between recurring revenues and
recurring expenditures. Moody's also looks at the amount of reserves the state
has available and the flexibility if revenues do not come in as expected, the
amount of debt the state has, and the management and implementation plans that
go along with the debt process, as well as making necessary cuts in times when
revenues and expenditures get out of alignment for economic reasons. Mr. Howard
said he has not seen the budget developed by the full conference committee, so
it would be premature for him to comment on what it might or might not do in
relation to the bond ratings.

Representative Wayne noted the debt load in the current
budget is heavier than last year's budget. He asked if it is likely that
Moody's will take another look at the state's bond rating and if the state may
be in a worse position. Mr. Howard said he could not comment on the nature of
the budget developed in conference since he had not seen it. He said Moody's
looks at every budget the state passes and goes down each of those factors and
takes those into consideration in arriving at its outlook and credit rating.

In response to another question from Representative Wayne,
Mr. Howard said if the state were to have a single A rating across the board, a
lower credit rating than it had at the end of 2005, it would cost the state an
extra 20 basis points, which translates into approximately $40 million in extra
interest costs, based on $1 billion of debt.

Representative Denham asked how the rise in interest rates
will affect the state's debt and interest payments. Mr. Howard said prior to
each session his office is asked to look forward at arriving at a debt service
template rate that is suggested to the General Assembly for appropriating debt
service to make sure all projects can adequately be funded. He said right now
they see a flattening of the yield curve, so long term rates have not gone up
as much, although they are starting to go up some as of late last week. Mr.
Howard said they have also entered into interest rate hedges for the forward
sale of bonds so they can lock in an interest cost that would be about 4.5% on
$3 million of the existing authorization.

With there being no further business, Senator Buford made a
motion to adjourn the meeting. The motion was seconded by Representative Wayne,
and the meeting adjourned at 9:35 a.m.